"Financial Results for the 4th Fiscal Period Ended January 2018"

Transcription

1 "Financial Results for the 4th Fiscal Period Ended January 2018" Star Asia Investment Corporation (Securities CODE 3468) Star Asia Investment Management

2 Contents 1.Offering Highlights 2 2. Executive Highlights 6 3.Performance of the 4th Fiscal Period Ended January Future Initiatives 20 5.Appendix 26 * In this material, amounts less than specified units are rounded down while ratios are rounded to a specified unit. * Terms used in this material are defined as below. Tokyo area : Tokyo area refers to Tokyo s 23 wards and the cities of Kawasaki and Yokohama for office properties and retail facilities, and Tokyo and the three prefectures of Kanagawa, Saitama and Chiba for residential properties, logistics facilities and hotels. 1

3 1.Offering Highlights 2

4 1.Offering Highlights Overview of January 2018 Public Offering 1 2 Promotion of Growth Strategy by Leveraging the support of Star Asia Group and Asset Manager s Proprietary Network ~Boost SAR s growth based on support by Star Asia Group s spreading business lines~ Steadily Increasing Asset Size and Strengthening Portfolio by Acquiring Middle-size Assets in the Tokyo Area ~Asset Size of 86.0bn after the offering ~ Offering Format Newly Issued Units Amount of offering Offer price Overview of Public Offering Domestic Offering 56,324 units(including O.A.) 5,801 million yen 106,724 yen Issuance resolution date January Price determination date January 22, 2018 Payment date February 1, 2018 Number of investment units issued and outstanding after PO Number of investment units held by the Sponsor Group (ratio) Changes in the portfolio 470,624 units 97,000 units(20.6%) End of 4th FP (As of Jan. 31, 2018) After Public Offering 3 Achieving Continued Internal Growth ~Portfolio management to pursue improved profitability and stability~ No. of properties 23 properties 29 properties Total acquisition price Average appraisal NOI yield 75.3 billion yen 86.0 billion yen 5.1% 5.1% Number of tenants Ratio of Tokyo area 79.4% 80.1% 3

5 1.Offering Highlights Steadily Increasing Asset Size and Strengthening Portfolio by Acquiring Middle-size Assets in the Tokyo Area ~Asset Size of 86.0bn after the offering ~ Overview of assets : 6 properties that are mainly middle-size assets in the Tokyo Area Acquisition price total 10,743m Vs. appraisal value 98.1% No. of properties 6 Increase the ratio of properties in the Tokyo Area and improve portfolio stability Composition by investment area/asset type as of the beginning of the 4 th period (acquisition price basis) Stability-driven The Tokyo Area 79.4% 52.3% Residence 19.9% Logistics 32.3% Other 20.6% Avg. NOI yield (appraisal value basis) 5.4% Growth potential-driven 47.7% Office 33.3% Hotel 14.5% Ratio of middle-size assets 100% Average NOI yield after depreciation 4.6% Composition by investment area/asset type after the offering (acquisition price basis) Stability-driven The Tokyo Area 80.1% 56.6% Residence 20.6% Logistics 36.0% Ratio of properties in the Tokyo area 85.6% Other 19.9% Growth potential-driven 43.4% Office 30.8% Hotel 12.7% List of properties Nihonbashi Hamacho Park Building Urban Park Ryokuchi-koen Mezzanine loan debt investment October 2017: Star Asia Mezzanine Loan Debt Investment Series 1 (subordinated bonds) Asset type Location Acquisition price NOI yield (appraisal value basis) Asset type Location Acquisition price NOI yield (appraisal value basis) Urban Park Koenji Asset type Location Acquisition price NOI yield (appraisal value basis) Second public offering Office Growth Chuo-ku, Tokyo 1,450m 4.7% Stability Residential Suita, Osaka 1,550m 5.7% Stability Residential Suginami-ku, Tokyo 1,167m 4.9% Funabashi Nishiura Logistics I Asset type Location Acquisition price NOI yield (appraisal value basis) Funabashi Nishiura Logistics II Asset type Location Stability Stability Logistics Funabashi, Chiba Acquisition price 821m NOI yield (appraisal value basis) Matsubushi Logistics Asset type Location Acquisition price NOI yield (appraisal value basis) Logistics Funabashi, Chiba 3,000m 5.1% 7.0% Stability Logistics Kitakatsushika, Saitama 2,755m 5.5% Portfolio 18 properties 61.4bn At IPO (April 20, 2016) 18 properties 61.4bn End of July 2016 (End of 1st Fiscal Period) 18 properties 61.4bn End of January 2017 (End of 2nd Fiscal Period) 23 properties 75.3bn 29 properties 86.0bn Asset replacement + 1st public offering August 1, 2017 Properties to be acquired After the offering (Note) (Beginning of the 4th Fiscal Period)) Number of properties Acquisition 7 / Disposition Total (anticipated) Acquisition / Disposition price Asset replacements + 1st follow-on offering As a result of a two asset replacements and follow-on offering, asset size grew and gain on sale was returned to unitholders December 2017: Star Asia Mezzanine Loan Debt Investment Series 2 (subordinated beneficiary interest of trust) 61.4bn 61.4bn 61.4bn Acquisition of 18.0bn / Disposition of 6.1bn 75.3bn 10.7bn 86.0bn Aggregated appraisal value 65.1bn 66.0bn 66.7bn 81.8bn 10.9 bn 92.8bn Avg. NOI yield (appraisal value basis) 5.2% 5.2% 5.2% 5.1% 5.4% 5.1% Number of tenants For further growth with the support of the evolving Star Asia Group Finan cial LTV of total assets 47.4% 44.8% 46.0% 45.8% (Note) Excluding Mezzanine Loan Debt Investment 4

6 1.Offering Highlights Improved Position in the Capital Market (Asset Size and Distribution Yield) Following the IPO, various measures were implemented to maximize unitholder value, with valuation rising alongside expansion of asset size End of 1 st fiscal period (July 29, 2016) Distribution yield (%) End of 1 st FP Asset size: 61.4bn Normalized distribution yield: 6.20% End of February, 2018 Distribution yield (%) 8% 7% After 2nd PO Asset size: 86.0bn Normalized distribution yield: 5.20% (Ref.) Conceptual diagram of the correlation between asset size and risk Stability and liquidity improved as a result of asset expansion following the issue of new investment units Anticipated yield expected to fall as the amount of assumed risk decreases Risk Asset/tenant diversification Increased liquidity Securing ratings 6% Inclusion in indices 5% 4% 0% ~ ~ Asset size ( 100mn) 3% 2% 0% 100 1,000 10,000 Asset size ( 100mn) Asset size Expanded assets to 86.0bn through the latest PO and subsequent property acquisitions Aims to accelerate growth and further increase unitholder value with the strong support from its everevolving sponsor Source: Company disclosures Note: Calculated based on the latest distribution (excluding optimal payable distribution) as of 2016/7/29 for the end of the 1 st FP and 2018/2/28 for the end of February 2018, acquisition price, and investment unit price. Only SAR uses normalized forecasted distribution as a basis for calculation 5

7 2. Executive Highlights 6

8 7 2.Executive Highlights 1 Active Management Strategies for Maximization of Unitholders Value Active Management Strategies for Maximization of Unitholders Value Implementation in the 4th FP Internal growth Elimination of the rent gap in the office portfolio Revision of lease conditions at logistics facilities Improvement of the occupancy of residences Reduction of management expenses Maintaining and improving appeal to potential tenants through appropriate capital expenditure and repair (utilization of sponsor support) External growth Sponsor Group spread business line Execution of Agreement on Preferential Negotiation on HAKUSAN HOUSE Invest in mezzanine loan debt, the first J-REIT invested in such assets Generation of gain on sale through asset replacement Financial strategy Execution of the 2nd public offering Execution of debt financing to diversify repayment dates Invitation of new lenders

9 2.Executive Highlights 2 Change in Cash Distribution per Unit Returned gain on sale of properties accompanying asset replacement to unitholders as cash distribution. Retain as internal reserves and secure stability of future cash distributions Change in Cash Distribution per Unit 1st FP 2nd FP 3rd FP 4th FP 5th FP 6th FP Forecast 829yen 3,046yen 4,340yen 4,039yen 2,750yen 2,804yen 16.8%up 2.2%up 1.9%up 0.9%up Actual 968yen 3,112yen 4,423yen 4,077yen Distribution of gain on sale of properties from asset replacement 1 4,423yen Distribution of gain on sale of properties from asset replacement 2 internal reserves 113mil Normalized DPU = DPU when the impact of transient factors (*) are removed 4,077yen Impact of transient factors (*) on DPU (*) Transient factors refer to the following: 3,112yen 448 1,926 1,313 Aim for further increase in cash distribution ,750yen ,804yen 1 Gain on sales of real estate properties 2 Equivalent of fixed property taxes, etc. that are not expensed due to being included in the acquisition cost of real estate, etc. 3 Of the expenses related to funding, arrangement fees for investment unit issuance expenses and borrowings from syndicates of lenders 4 Expenditures such as asset management fees and taxes and public charges (non-deductible consumption tax, etc.) which fluctuates as a result of 1 through 3 5 Tax expenses for internal reserves as well as income tax that increase with internal reserves, etc. 2,664 2,497 2,764 2,782 2, 第 2 期実績第 3 期実績第 4 期実績第 5 期予想第 6 期予想 2nd FP actual 3rd FP actual 4th FP actual 5th FP forecast 6th FP forecast 8

10 2.Executive Highlights 3Change in Business Results Cash distribution per unit for the 4th fiscal period was 4,077 yen (+0.9% compared to forecast) 1st FP (ended July 2016) actual 2nd FP (ended Jan. 2017)actual 3rd FP (ended July 2017) actual 4th FP (ended Jan. 2018) forecast (disclosed on Jan. 12, 2018) 4th FP (ended Jan 2018) actual Comparison with forecast Operating revenue 1,859 2,017 3,211 3,138 3, Office rent Major factors for the difference from the forecast Minami Azabu Shibuya +4 million yen Nishi-Shinjuku Matsuya Building +2million yen Residence rent Daikanyama +6 million yen Logistics rent Hotel rent Other Utilities expenses +19 million yen Revenue from renewal fees +10 million yen Revenue from restoration +4 million yen Mezzanine Gain on sales of real estate property Operating expenses ,113 1,123 1, Expenses related to rent business SGA Operating income 1,147 1,190 2,098 2,015 2, Non-operating income Non-operating expenses Ordinary income 335 1,073 1,833 1,834 1, Net income 333 1,072 1,832 1,769 1, Cash distribution per unit 968yen 3,112yen 4,423yen 4,039yen 4,077yen +38yen NOI 1,538 1,636 1,763 1,832 1, Rent revenues/expenses 1,291 1,392 1,476 1,526 1, FFO per unit 1,684yen 3,820yen 2,948yen 3,149yen 3,224yen +75yen Balance of Internal reserves Interest and dividends, etc. 7 million yen Upfront fees 7 million yen Repair expenses +9 million yen Utilities expenses +8 million yen (Unit: million yen) 9

11 2.Executive Highlights 4Forecast Due to materialization of unrealized gain from transfer of owned assets, cash distributions per unit for the 4th FP was 4,077 yen Cash distributions per unit are forecast to be 5th FP: 2,750yen, 6th FP: 2,804yen. 23property 29property (Unit: million yen) 4th FP (ending Jan 2018) actual (A) 5th FP (ending July 2018) forecast (B) 6th FP (ending Jan 2019) forecast (C) Increase/ decrease (B-A) Increase/ decrease (C-B) Major factors for the increase/decrease Operating revenue 3,194 2,751 2, Factors for increase/decrease in 5th FP (compared to 4th FP actual) Rent revenues/expenses 2,408 2,733 2, Gain on sales of real estate properties Mezzanine Operating expenses 1,142 1,246 1, Expenses related to rent business SGA Operating income 2,051 1,504 1, Non-operating income Non-operating expenses Ordinary income 1,876 1,231 1, Income taxes Net income 1,802 1,230 1, Cash distribution per unit 4,077 2,750 2,804 1, 円 NOI 1,871 2,113 2, Rent revenues/expenses +325 Rent and common fees +356 (Assets acquired in 5th FP +332) (Seasonal fluctuation for hotels +10) Utilities expenses -15 Absence of temporary factors (revenues from restoration work, cancellation penalty fees, etc.) -14 2Gain on sales of real estate properties -771 Absence of gain on sales in 4th FP 3Expenses related to rent business +135 Assets acquired in 5th FP +95 Start of expensing of fixed property taxes, etc. for assets acquired in 3rd FP +36 4SGA -31 Asset management fee -23 taxes and public charges (nondeductible consumption tax) -8 5Non-operating expenses +97 Interest expenses +21 Borrowing related expenses +96 (Temporary increase in line with new borrowings and refinancing in 5th FP) Investment unit issuance expenses Income taxes -73 Increase in burden in 4th FP due to internal reserve Factors for increase/decrease in 6th FP (compared to 5th FP forecast) 1Rent revenues/expenses -19 Seasonal fluctuation for hotels -10 2Expenses related to rent business -13 Repair expenses -17 3Non-operating expenses -96 Interest expenses +4 Borrowing related expenses -93 Investment unit issuance expenses -7 Rent revenues/expenses 1,565 1,756 1,

12 3.Performance of the 4th Fiscal Period Ended January

13 16 年 04 月 16 年 05 月 16 年 06 月 16 年 07 月 16 年 08 月 16 年 09 月 16 年 10 月 16 年 11 月 16 年 12 月 17 年 01 月 17 年 02 月 17 年 03 月 17 年 04 月 17 年 05 月 17 年 06 月 17 年 07 月 17 年 08 月 17 年 09 月 17 年 10 月 17 年 11 月 17 年 12 月 18 年 01 月 3. Performance of the 4th Fiscal Period Ended January Occupancy Rate Status Period-end occupancy rate: 97.8% Portfolio occupancy rate steadily increased as a result of leasing activities in collaboration with leasing agents based on leasing strategies which take into account the features of each property. 100% 98% オフィス Office 住宅 Residence 物流施設 Logistics ホテル Hotel 全体 Total 4th FP Hotel 100.0% Office 99.7% [Total] The occupancy rate as of the end of the 4th FP is 97.8%, the highest since the launch of the Investment Corporation [Office] Maintained a level above 99% 96% Total [Residence] 94% 92% 90% 97.8% Residence 97.1% Logistics 96.9% Successfully increased the occupancy rate From 94.2% at the end of 3rd FP to 97.1% at the end of 4th FP [Logistics facility] Occupancy is stable as many of the tenants have concluded fixedterm building lease contracts 88% Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 16 May 17 Jun 17 Jul 176 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 [Hotel] Occupancy is 100% with full lease to the hotel operator 1st FP 2nd FP 3rd FP(24property ) 4th FP(23property) Office 95.8% 99.2% 98.8% 99.7% Residence 92.5% 92.6% 94.2% 97.1% Logistics 96.3% 96.3% 96.9% 96.9% Hotel 100.0% 100.0% 100.0% 100.0% Total 95.9% 96.8% 97.3% 97.8% *End of 3rd FP includes 1 office property (Oak Minami-Azabu) sold on August 1,

14 3. Performance of the 4th Fiscal Period Ended Jan Office - Eliminating rent gap - Focused on elimination of rent gap: Decreased rent gap from 6.1% (Oct. 2017) to 5.2% at the end of the 4th FP (end of Jan. 2018) Elimination of the rent gap will continue to be a focus * Market rent refers to the median of each property's expected new contract rent (range) assessed as the end of the period by CBRE K.K., and rent gap refers to the disparity between the market rent and each tenant's contract rent. Status of Distribution of Rent Gap at End of Period (based on areas) 100% 80% 60% 73.3% 74.1% 72.0% 36.1% 35.2% 34.4% Planning to pursue active negotiations for upward rent revision at the time of contract renewal. Planning to hold negotiations for upward rent revision < Rent gap of office buildings> As of end of 3rd FP:6.8% As of end of Oct :6.1% As of end of 4rh FP:5.2% 40% 20% 0% 37.2% 38.9% 37.7% 26.8% 25.9% 28.0% 平成 3rdFP 29 年 7 月末平成 29 Oct 年 月時点平成 304thFP 年 1 月末 Jul 2017 Jan 2018 ~0% 0%~10% 10%~ considering comprehensively other leasing terms and conditions, etc. at the time of contract renewal. Aim to extend tenancy and maintain current rent levels by regularly contacting tenants to improve their satisfaction level. Although 74.1% of all properties had rent gap as of July 2017, the figure decreased to 72.0% by the end of 4thd FP due to measures such as soliciting new tenants, raising rents upon tenant replacement, and revising rent upward at the time of leasing contract renewal. Change in Rate of Increase of Rent with Leasing Contract Renewals Change in Rate of Increase of Rent with Tenant Replacements (cases) 増額件数 Increase 減額件数 Decrease 更新時の賃料上昇率 Rate of increase of rent of rent Of rent 16.1% 10.7% % 8.5% -2 1 平成 st FP Jul 年 7 月期 2ndFP 平成 29 Jan 年 月期平成 3rdFP 29 Jul 年 月期平成 4thFP 30 年 Jan1 月期 rdFP Jul 2017 The number of 更新総件数 renewals contract (1) (5) (5) (14) * Increase or decrease of rent is determined by comparison to the rent before rent revision. *Ratio of the increased portions is calculated as a percentage of total rent of tenants rents before renewal as the denominator % 15.0% 10.0% 5.0% 0.0% (cases) Increase 増額件数 減額件数 Decrease 契約時の賃料上昇率 Rate of increase of rent of rent Of rent 15.0% % 15.0% % % 15.0% 10.0% 5.0% 0.0% 平成 1 st 28 FP 年 Jul 月期 平成 2ndFP 29 Jan 年 1 月期 2017 平成 3rdFP 29 年 Jul 7 月期 2017 平成 4thFP 30 Jan 年 月期 The number of 新規契約総件数 new contract (1) (4) (11) (5) *For a case where there is no previous tenant, it is counted as increase of rent and the amount of increased rent is determined as 0. *Ratio of increased portions is calculated as a percentage of total of previous rents for sections with new tenants. 13

15 3.Performance of the 4th Fiscal Period Ended January Office - Status of contracts - A rise in total monthly rent Planning to pursue continuous negotiations for upward rent revision at the time of contract renewal going forward Total Monthly Rent and Change in Average Occupancy Rate of Office Portfolio Contract Renewal Time of Office Portfolio (Thousand yen) 128, ,500 Total 賃料総額 Fee 99.7% 稼働率 Occupancy rate 99.7% 99.8% 99.6% ( m2 ) 12, , , 面積 Area 10, 件数 Cases (cases) , , % 99.2% 8, , , , , , % 99.0% 98.8% 98.6% 6, , , , , , %up 0.7%up 127, , ,797 平成 3rdFP 29 年 7 月末 Oct 平成 年 10 月末 4thFP 平成 30 年 1 月末 Jul 2017 Jan % 98.2% 98.0% 97.8% 2, 平成 5thFP 30 年 7 月期 平成 6thFP 31 年 1 月期 平成 7thFP 31 年 7 月期 平成 8thFP 32 年 1 月期 onward それ以降 Jul 2018 Jan 2019 Jul 2019 Jan *Includes data of Nihonbashi Hamacho Park Building acquired on February 2,

16 3.Performance of the 4th Fiscal Period Ended January Overview of office market in the Fukuoka area Overview of office market in the Fukuoka area The office market in the Fukuoka area (Fukuoka City) continues to be bullish following improvement in the supply-demand balance since The area s vacancy rate continues to decrease year after year, falling to a historic low in 2017 with large-scale buildings (*1) and medium- to large-scale buildings (*1) each in the 1% range. In addition, the rent level (per tsubo), too, has been stable with the level for large-scale buildings in the mid 13,000-yen range and medium- to large-scale buildings in the mid 11,000-yen range, which again goes to show that the office leasing market situation in the Fukuoka area is bullish. New supply going forward is expected to be contained at a supply area of just approximately 8,800 tsubos in 2018 and approximately 1,600 tsubos in 2019 as shown in Figure 3, not to mention net absorption area (*2) far exceeding the scheduled supply area going forward from 2018 through 2020 as shown in Figure 4. Taking these and other factors into account, the state of tight supply-demand is likely to continue. The average rent unit price at the end of January 2018 for Hakata-eki Higashi 113 Building and Hakata-eki East Place (each classified as medium- to large-scale buildings) that are in the Investment Corporation s portfolio was approximately 9,800 yen per tsubo (rent gap of -1,200 yen) for Hakata-eki Higashi 113 Building and 9,300 yen per tsubo (rent gap of - 1,700 yen) for Hakata-eki East Place, a rent gap sizeable enough to anticipate future rent increase and thus likely to contribute to internal growth. (2) (1) (*1) (*2) (*3) (1) (2) (2) (*4) (Source) Sanko Estate Co., Ltd. Net absorption Case1 Case2 Assumed that the average absorption demand for the past three years will continue for the next three years Assumed that the average absorption demand for the past ten years will continue for the next ten years Net absorption Net absorption (*1) Large-scale buildings refer to buildings with typical floor area of 200 tsubo or more per floor, and medium- to large-scale buildings refer to buildings with typical floor area of 100 tsubo or more but less than 200 tsubo per floor. (*2) Net absorption area is the area obtained by subtracting the lease floor area of this year from the total area of the lease floor area of the previous year and the new supply area of this year. 15

17 3. Performance of the 4th Fiscal Period Ended Jan Logistics facility/hotel Logistics facility <Status of Diversification of Contact Renewal Periods (based on floor area)> 50,000m2 40,000m2 30,000m2 (2) (2) (1) (4) (1) Increased rent from the current amount and concluded a 5- year fixed-term building lease contract (Rent increase of 2.5% from the previous or an increase of roughly 5,900 thousand yen/year) To increase rent from the current amount and conclude a 3- year fixed-term building lease contract 20,000 m2 10,000 m2 0 m2 (1) (1) (2) (2) (2) 5 期 (H30/7 5thFP 期 ) 6 期 (H31/1 6thFP 期 ) 7 期 (H31/7 7thFP 期 ) 8 期 8thFP (H32/1 期 ) 9 期 9thFP (H32/7 期 ) 10thFP 期以降 onward (1) To implement work that accommodates tenants requests as well as raises the property value Currently in process for renewal of a long-term fixed-term building lease contract accompanying rent increase Hotel <Ratios of fixed rent and floating rent> 4thFP Actual 5thFP Forecast 10.9% 15.5% 89.1% 84.5% 6thFP Forecast 89.4% 10.6% <Other initiatives> In the 4th FP, strengthened arrangements for sharing of information such as sales reports/outlook and market environments, with hotel operators Proposed hospitality solutions for improving lodging convenience and guest satisfaction among other initiatives. 変動賃料 Floating rent Fixed 固定賃料 rent 16

18 3. Performance of the 4th Fiscal Period Ended Jan Residence Residence <Change in total monthly rent and average occupancy rate of the residential properties > Thousand yen 63,500 63,000 62,500 62,000 61,500 61,000 60,500 60, % 賃料総額 Total Fee 94.3% 61,003 61,663 稼働率 Occupancy rate 97.1% 62,971 3rdFP 平成 29 年 7 月末平成 Oct 年 10 月末平成 4thFP 30 年 1 月末 Jul 2017 Jan % 97.0% 96.5% 96.0% 95.5% 95.0% 94.5% 94.0% 93.5% 93.0% In the 4th FP, worked on residential portfolio management focusing on improving the occupancy rate. Raised the occupancy rate and increased rent through closer cooperation with leasing agents while continuing with the following initiatives taken in the 3rd FP. <Urban Park Azabu-juban> Renovation for dividing space in order to improve competitiveness and increase rent. < Urban Park Kashiwa> Renovated kitchens, bathrooms and living rooms to enhance functionality and provide a residential environment that would strongly appeal to family households In addition, hired two individuals with abundant experience in asset management in January Will aim for further internal growth by further developing cooperation with on-site personnel. <Increasing rent by strategic Renovation> Urban Park Azabu-juban Urban Park Kashiwa Implemented strategic renovation upon restoration work at the time of tenant moving out Rent up 19.3% Implemented floor plan conversion work upon restoration work at the time of tenant moving out Converted from 1LDK to 2LDK to cater to family households, resulting in rent up 29.5% (compared to before) Implemented renovation of 5 units Rent up 0.8% in total amount for the 5 units 17

19 . Performance of the 4th Fiscal Period Ended Jan SAR invest in mezzanine loan debt SAR invest in mezzanine loan debt as a measure to pursue maximization of unitholder value This investment in mezzanine loan debt, which is the first such case by a listed real estate investment corporation SAR will continuously search for investment targets Star Asia Mezzanine Loan Debt Investment Series 1 Haneda Hotel Development GK 1 Attractive investment alternative when real estate equity prices are expensive Underlying asset HOTEL RELIEF Premium Haneda Appraisal Value 4,080m Acquired by third parties (Subordinated bonds) 301m Senior loan c. 1,840m Star Asia Mezzanine Loan Debt Investment Series 1 (Subordinated bonds) 400m Return:3M TIBOR+5.0% Increased revenue due to higher afteramortization yields of real estate portfolios Serves as an effective investment using current cash on hand (cash and deposits) for accretion Are judged most likely to assure repayment of principal and interest so typically considered lower risk than investment in real estate Pursue maximization of unitholder value GK Japan B Asset Underlying asset Sasazuka South Building Appraisal Value 2,800m (Equity) Silent partnership investment, etc. Star Asia Mezzanine Loan Debt Investment Series 2 Non-recourse loan (loan receivable) Shinsei Trust & Banking c. 1,948m (Equity) Silent partnership investment, etc. Shinsei Trust & Banking (note) Preferential beneficiary interest Shinsei Bank c. 1,614m Star Asia Mezzanine Loan Debt Investment Series 2 (Subordinate Beneficiary Interest) 334m Return:3M TIBOR+5.0% (note) Trust with loan claims as asset in trust (trustee: Shinsei Trust & Banking Co. Ltd.) has been established 18

20 3. Performance of the 4th Fiscal Period Ended Jan Financial Standing Invited new lenders Reduced refinancing risk and interest rate hike risk by diversifying repayment dates of borrowings and fixing the interest rate for borrowings due in the 15th FP among new borrowings. < Balance of borrowings (As of March 16, 2018)> Longterm Balance of borrowings (unit:mil) Interest rate Term FP of the repayment date 7,300 Base rate (Note 1)+0.30% 2.0 years 5 FP 7, %(Note2) 3.0 yeas 7 FP 7, %(Note2) 4.0 yeas 9 FP 7, %(Note2) 5.0 yeas 11 FP 2, %(Note2) 3.5 yeas 10 FP 4, %(Note2) 5.0 yeas 13 FP 1, %(Note2) 3.5 yeas 10FP 1,190 Base rate (Note 1)+0.20% 1.1 yeas 7FP 4, %(Note2) 5.1 yeas 15FP 43,230 (Note 1) JBA 1 month yen TIBOR (Note 2) The interest rates shown take into consideration the effects of interest rate swaps (fixing of interest rates). < Bank Formation> Mitsubishi UFJ Trust and Banking 6.5% Resona Bank 8.6% Shinsei Bank 8.6% The Bank of Fukuoka 1.2% Sumitomo Mitsui Banking 28.0% < Diversification of repayment dates (As of March 16, 2018) >(mil) 10,000 8,000 6,000 4,000 2, ,300 <Mainly financial indicator> 0 8, ,300 4,000 7, , ,690 5thFP 6thFP 7thFP 8thFP 9thFP 10thFP 11thFP 12thFP 13thFP 14thFP 15thFP LTV (based on total assets) Balance of borrowings Long-term debt ratio Average remaining period to maturity 4th FP 16 th March, % 37,350 mil 100.0% 2.1 years 46.1%(Note) 43,230 mil 100.0% 2.3 years Average borrowing period 3.7 years 3.8 years Aosora Bank 8.6% Sumitomo Mitsui Trust Bank, 13.8% Mizuho Bank 24.9% Average interest rate Fixed interest rate ratio 0.492% 80.5% 0.512% (Note) 46.0% when reflecting early repayment (190 million yen) using consumption tax refunds, etc., which is scheduled to be executed in the 6th FP. *The amounts and figures in the indicators as of March 16, 2018 indicate figures that reflect the interest rate swap set on March 16, 2018 as well as the early repayment (280 million yen) scheduled to be executed in the 5th FP. 80.4% 19

21 4. Future Initiatives 20

22 4. Future Initiatives 1 Points of Focus Strategies for maximization of unitholders value Points of Focus in and after the 5th Fiscal Period Internal growth Elimination of the rent gap in the office portfolio Negotiation for rent increase for logistics facilities Stabilization of the occupancy rate of the residential portfolio (Strengthening of competitiveness through renovation, etc.) Maintenance and improvement of appeal to potential tenants through appropriate capital expenditure and repair (utilization of sponsor support) Reinforcement of asset management function Increase of investment management personnel by two External growth Expansion of property pipeline from the Star Asia Group which has been expanding its business line Further utilization of warehousing function of the sponsor group Finding businesses through enhanced unique network of the Asset Manager Appointment of new Director and CIO Continuous investment in mezzanine loan debt Consideration of asset replacement Financial strategy Continued deliberation on the acquisition of ratings fix interest rate payments for hedge the risk of interest rate fluctuation pertaining fixed 16th March, 2018 Invitation of new lender 21

23 4. Future Initiatives 2 Continuing implementation of active management (proactive management to maximize unitholders interest) アクティブマネジメント ( 投資主利益の最大化を追求する施策の積極的な実施 ) の継続的実行 120,000 Specific Initiatives Pursuit of optimum portfolio management Asset replacement with the aim of improving portfolio quality, returns, and stability Asset transfer that materializes unrealized gain after reviewing value of owned asset Approach to minimize rent gap Announced in October 2017 In order to diversify earnings opportunities, invest in mezzanine loan debt, the first J-REIT invested in such assets Star Asia Mezzanine Loan Debt Investment Series 1 115, , ,000 Promotion of proactive financial management Reduction of financing costs Early repayment of borrowings Introduction of the cumulative investment system by officers and employees Consideration of obtaining credit rating Consideration of acquisition of own investment units Realizing maximization of unitholders interest Maintenance/ improvement of cash distribution per unit Pursuit of future external growth/investment opportunities Obtaining preferential negotiation rights Utilizing sponsor support (warehousing function) Diversification of income earning opportunities (investment in mezzanine loan debt) Announced in March 2017 First follow-on offering Increase in asset size: 16.5bn 100,000 95,000 April 2016 IPO Announced in November 2016 Introduction of cumulative investment system by officers and employees of the asset manager Announced in December 2017 We continued to invest in mezzanine loan debt, an effective investment given the current real estate market Star Asia Mezzanine Loan Debt Investment Series 2 Announced in January 2018 Second public offering Increase in asset size: 10.7bn 90,000 Announced in December 2016 First asset replacement: Gain on sale: 150m Announced in February 2017 Second asset replacement: Gain on sale: 1.51bn 85,000 本投資法人 SAR 東証 TSE REIT REIT 指数 Index 80, (Note) The above indicates relative change of the Index between April 20, 2016 and December 28, 2017, setting the closing index of 1, on April 20, 2016, as equal to the closing price of 98,300 per unit of the SAR investment unit. 22

24 4. Future Initiatives 3Promotion of Growth Strategy by Leveraging the support of Star Asia Group and Asset Manager s Proprietary Network ~Boost SAR s growth based on support by Star Asia Group s spreading business lines~ Continuously evolving Star Asia Group Star Asia Japan Special Situations Fund II IV Star Asia Capital Corp. Limited Star Asia Asset Advisors Star Asia Sogo Kaihatsu GSA Star Asia Star Asia Group functions Star Asia Management Limited (Sponsor) Obtain real estate development function Began developing special operational assets, etc. Asset classes Spreading business line by expansion of functions and asset classes Composition to expansion of SAR Evolution of the Star Asia Group has served to strengthen and expand the support framework for SAR Diversification of acquisition methods Key properties developed & invested in by the Star Asia Group Acquisitions through the asset manager s proprietary network Acquisitions, leveraging Star Asia Group s wide range of relationships Office Residence Logistics Hotel The sponsor group, holding 20.6% of SAR s investment units, supports diverse external growth Urban Park Shin-Yokohama Acquired by leveraging warehousing function Urban Park Namba Hakata-eki Higashi 113 Building Urban Park Namba Nishi-Shinjuku Matsuya Building Minami-Azabu Shibuya Building Alphabet Seven Shibuya MK Building Asahi Building Honmachibashi Tower Urban Park Azabujuban Urban Park Daikanyama Special situation investing Upon being listed Iwatsuki Logistics Yokohama Logistics Funabashi Logistics Smile Hotel Namba R&B Hotel Umeda East Urban Park Gokokuji Urban Park Kashiwa Acquired by leveraging warehousing function Tokorozawa Logistics Baraki Logistics Best Western Yokohama Best Western Tokyo Nishikasai Hakata-eki East Place Baraki Logistics BEST WESTERN BEST WESTERN Hakata-eki Yokohama Tokyo Nishikasai East Place Until the 1st public offering Urban Park Gokokuji Star Asia Mezzanine Loan Debt Investment Series 1 Investment in mezzanine loan debt Urban Park Koenji Funabashi Nishiura Logistics I Matsubushi Logistics Star Asia Mezzanine Loan Debt Investment Series 2 Nihonbashi Hamacho Park Building Funabashi Nishiura Logistics II Urban Park Ryokuchi-koen Acquired properties in the 4th fiscal period (incl. Mezzanine Loan Debt Investment Series) executed an agreement on preferential negotiation right HAKUSAN HOUSE completion:feb Total beds: 364 Student accommodation property providing a shared space and concierge service for exchange students from overseas and Japanese students GINZA SIX LEI'S UMEDA (Note) As of the date of this material, each of above properties is not acquired by SAR and there is no guarantee that SAR will acquire each of above properties. SAR executed an agreement on preferential negotiation right on HAKUSAN HOUSE. Theimage of HAKUSAN HOUSE may differ from actual building after completion. Overview of assets under management of the Sponsor Group (appraisal value basis)(as of the end of September 2017) Logistics 3.4% Hotel 30.1% Residence 6.0% Asset type (Purpose) Commercial 16.6% Office 43.9% (Rendering) Other 10.7% 55.1bn Location The Tokyo Area 89.3% 23

25 4. Future Initiatives 4Summary of the agreement on preferential negotiation About HAKUSAN HOUSE HAKUSAN HOUSE is a student accommodation property for international students and Japanese students constructed in Hakusan, Bunkyo-ku, Tokyo, with a total floor area of 5, m 2 and 175 rooms/364 beds. It has a full range of common spaces and is also equipped with facilities and services such as concierge services. With the first project HAKUSAN HOUSE, UNINEST, a brand for global student accommodations of GSA Group, arrived in Japan for the first time to provide Japanese students and international students with residential spaces as well as a common space to form a community. As of the date of this material, Hakusan House is not acquired by SAR and there is no guarantee that SAR will acquire each of above properties. Premium Nest Location Site area Total floor space Structure/ Number of stories 4 Hakusan, Bunkyo-ku, Tokyo 1, m2 5, m2 Share Nest Study Living Room Rooftop Terrace Steel structure (partly reinforced concrete) / 9 stories above the ground Nearby universities with many international students Rikkyo Univ. Ikebukuro campus Gakushuin Univ. IMejiro campus Ochanomizu Univ. Waseda Univ. Waseda campus Tsukuba Univ. Tokyo campus Japan Women s Univ. Mejiro campus Housei Univ. Ichigaya campus Toyo Univ. Hakusan campus HAKUSAN HOUSE No. of University international students (note) 1 Waseda University 4,767 2 The University of Tokyo 3,260 3 Tokyo University of Social Welfare 3,000 4 Ritsumeikan Asia Pacific University 2,818 5 Japan University of Economics 2,708 6 University of Tsukuba 2,326 7 Osaka University 2,184 (Source) IAJ Japan Student Services Organization Star Asia Investment Corporation (Note) Number of international students for universities provided above is the total for all the campuses combined 24 Ueno Station The Univ. of Tokyo Chuo Univ. Hongo campus Ko-rakuen campus Meiji Univ. Suruga-dai campus Sensyu Univ. Kanda campus

26 4. Future Initiatives 5 Future Growth Strategy Future Growth Strategy: Expand asset size to 200 billion yen by 2020 Growth Phase Stable Growth Acquisition goal 35 billion yen per year Asset of 437 billion yen Began operations with private placement At the time of listing Additional property acquisition worth 11.7 billion yen Total: 61.4 billion 1st PO Asset replacement Total:75.3 billion( ) 2nd PO Total:86.0billion 平成 Private 28 年 1 Reit 月私募時 Jan 2016 IPO 平成 28 年 4 月 Apr 上場時 stFP 平成 28 年 7 月 Jul 第 期末 2ndFP 平成 29 年 1 月 Jan 第 期末 平成 3rdFP 29 年 7 月 Jul 第 期末 平成 4thFP 30 年 1 月 Jan 第 期末 平成 Feb 年 3 月 現在 平成 32 年 2020 Realization of speedy and steady external growth by sponsor support and asset management company's own route * Excludes the office building (Oak Minami-Azabu) sold on August 1,

27 5.Appendix 26

28 Balance Sheets for the 4th Fiscal Period ended January 31, 2018 Assets Current assets 3rd fiscal period (As of July31, 2017) 4th fiscal period (As of January 31, 2018) Cash and deposits 1,598,847 1,667,713 Cash and deposits in trust 3,239,091 3,153,262 Operating accounts receivable 52,745 44,669 Prepaid expenses 108,945 90,216 Deferred tax assets 20 - Consumption taxes receivable 261,743 - Other - 5,354 Total current assets 5,261,393 4,961,216 Non-current assets Property, plant and equipment Buildings in trust 25,006,453 24,909,318 Accumulated depreciation 764,163 1,055,284 Buildings in trust, net 24,242,289 23,854,033 Structures in trust 9,606 9,606 Accumulated depreciation Structures in trust, net 9,209 8,872 Machinery and equipment in trust 11,270 20,707 Accumulated depreciation 499 1,240 Machinery and equipment in trust, net 10,771 19,467 Tools, furniture and fixtures in trust 9,971 20,207 Accumulated depreciation 1,228 2,314 Tools, furniture and fixtures in trust, net 8,743 17,892 Land in trust 50,426,286 48,929,717 Total property, plant and equipment 74,697,300 72,829,984 Intangible assets Leasehold rights in trust 3,459,138 3,459,138 Total intangible assets 3,459,138 3,459,138 Investments and other assets Investments securities - 734,500 Long-term prepaid expenses 146, ,333 Lease and guarantee deposits 10,000 10,000 Other 35,321 38,473 Total investments and other assets 191, ,307 Total non-current assets 78,348,016 77,193,430 Total assets 83,609,410 82,154,646 Liabilities Current liabilities 3rd fiscal period (As of July31, 2017) Operating accounts payable 227,743 4th fiscal period (As of January 31, 2018) 292,305 Current portion of long-term loans payable 8,680,000 7,300,000 Accounts payable - other 269, ,696 Accrued expenses 7,030 6,054 Income taxes payable 1,023 74,345 Accrued consumption taxes 12, ,003 Advances received 589, ,283 Other 9,492 10,925 Total current liabilities 9,796,897 8,437,613 Non-current liabilities Long-term loans payable 30,050,000 30,050,000 Tenant leasehold and security deposits in trust 1,863,336 1,794,980 Other 6,635 1,507 Total non-current liabilities 31,919,971 31,846,487 Total liabilities 41,716,869 40,284,100 Net assets Unitholders equity Unitholders capital 40,031,185 40,031,185 Surplus Unappropriated retained earnings (undisposed loss) 1,832,669 1,802,393 Total surplus 1,832,669 1,802,393 Total unitholders equity 41,863,855 41,833,579 Valuation and translation adjustments (Unit: thousand yen) Deferred gains or losses on hedges 28,686 36,966 Total valuation and translation adjustments 28,686 36,966 Total net assets 41,892,541 41,870,546 Total liabilities and net assets 83,609,410 82,154,646 27

29 Statement of Income for the 4th Fiscal Period (From August 1, 2017 to January 31, 2018) Operating revenue 3rd fiscal period From: February 1, 2017 To: July 31, th fiscal period From: August 1, 2017 To: January 31, 2018 Lease business revenue 2,146,216 2,255,617 Other lease business revenue 166, ,654 Gain on sales of real estate property 898, ,663 Others - 14,412 Operating expenses 3,211,392 3,194,348 Expenses related to rent business Expense related to rent business 836, ,650 Asset management fee 189, ,612 Asset custody and administrative service fees 16,912 19,515 Directors compensations 2,400 2,400 Other operating expenses 67,794 67,331 Total operating expenses 1,113,150 1,142,509 Operating income 2,098,241 2,051,838 Non-operating income Interest income Interest on refund Total non-operating income Non-operating expenses (Unit: thousand yen) Interest expenses 82,120 92,575 Borrowing related expenses 129,149 55,587 Investment unit issuance expenses 48,461 27,928 Other 5,000 - Total non-operating expenses 264, ,091 Ordinary income 1,833,531 1,876,542 Income before income taxes 1,833,531 1,876,542 Income taxes - current 1,026 74,348 Income taxes - deferred 8 20 Total income taxes 1,018 74,369 Net income 1,832,513 1,802,173 表示単位未満を切り捨てて表示しております Retained earnings brought forward Unappropriated retained earnings (undisposed loss) 1,832,669 1,802,393 28

30 Period-end Appraisal Value and Indicators (Unit: million yen) Property name Acquisiti on price 1 Period-end book value 2Appraisal value at end of 3rd fiscal period Unrealized gains (losses) 2-1 Period-end appraisal value: Total book value: Period-end unrealized gains (losses): Net assets per unit: Unrealized gains per unit: NAV per unit (*1): P/NAV per (*2): ,680 million yen 76,289 million yen 6,390 million yen 101,062 yen 15,426 yen 112,412 yen (*1) NAV per unit = (Period-end net assets + Periodend unrealized gains Total cash distribution) / Total number of investment units issued and outstanding (*2) P/NAV=Investment unit price / NAV per unit (Investment unit price on January 31, 2018: 108,700 yen) office Minami-Azabu Shibuya Building 2,973 3,005 3, Honmachibashi Tower 6,065 6,028 6, Nishi-Shinjuku Matsuya Building 1,763 1,824 2, Alphabet Seven 1,725 1,802 2, Shibuya MK Building 2,042 2,084 2, Hakata-eki Higashi 113 Building 1,885 1,958 2, Asahi Building 6,320 6,354 6, Hakata-eki East Place 2,286 2,310 2, subtotal 25,059 25,368 29,080 3,711 Residence Urban Park Azabujuban 2,045 2,098 2, Urban Park Daikanyama 6,315 6,420 7, Urban Park Shin-Yokohama 2,528 2,578 2,580 1 Urban Park Namba 1,490 1,542 1, Urban Park Gokokuji 1,460 1,495 1, Urban Park Kashiwa 1,186 1,251 1, subtotal 15,024 15,388 16, Logistics Iwatsuki Logistics 6,942 6,831 7, Yokohama Logistics 3,560 3,732 4, Funabashi Logistics 7,875 7,908 8, Baraki Logistics 4,700 4,722 4, Tokoyozawa Logistics 1,300 1,349 1, subtotal 24,377 24,544 26,030 1,485 Hotel R&B Hotel Umeda East 2,069 2,135 2, Smile Hotel Namba 1,750 1,724 1, Best Western Tokyo Nishi-kasai 3,827 3,862 3, Best Western Yokohama 3,248 3,266 3,270 3 subtotal 10,894 10,988 11, Total 75,354 76,289 82,680 6,390 29

31 Portfolio List (at the end of the 4th Fiscal Period) Property name Location Acquisition price(million yen) Appraisal value(million yen) Investment ratio Appraisal NOI yield OFC-01 Minami-Azabu Shibuya Building Minato Ward, Tokyo 2,973 3, % 4.9% OFC-03 Honmachibashi Tower Osaka City, Osaka 6,065 6, % 5.1% OFC-04 Nishi-Shinjuku Matsuya Building Shibuya Ward, Tokyo 1,763 2, % 6.3% Office OFC-05 Alphabet Seven Minato Ward, Tokyo 1,725 2, % 5.8% OFC-06 Shibuya MK Building Shibuya Ward, Tokyo 2,042 2, % 5.6% OFC-07 Hakata-eki Higashi 113 Building Fukuoka City, Fukuoka 1,885 2, % 5.8% OFC-08 Asahi Building Yokohama City, Kanagawa 6,320 6, % 4.9% OFC-09 Hakata-eki East Place Fukuoka City, Fukuoka 2,286 2, % 5.2% RSC-01 Urban Park Azabujuban Minato Ward, Tokyo 2,045 2, % 4.4% RSC-02 Urban Park Daikanyama Shibuya Ward, Tokyo 6,315 7, % 4.8% Residence RSC-04 Urban Park Shin-Yokohama Yokohama City, Kanagawa 2,528 2, % 4.8% RSC-05 Urban Park Namba Osaka City, Osaka 1,490 1, % 5.4% RSC-06 Urban Park Gokokuji Toshima Ward, Tokyo 1,460 1, % 5.1% RSC-07 Urban Park Kashiwa Kashiwa, Chiba 1,186 1, % 5.1% LGC-01 Iwatsuki Logistics Saitama City, Saitama 6,942 7, % 4.8% LGC-02 Yokohama Logistics Yokohama City, Kanagawa 3,560 4, % 5.7% Logistics LGC-03 Funabashi Logistics Funabashi City, Chiba 7,875 8, % 5.4% LGC-04 Baraki Logistics Ichikawa City, Chiba 4,700 4, % 4.5% LGC-05 Tokorozawa Logistics Tokorozawa City, Saitama 1,300 1, % 6.0% HTL-01 R&B Hotel Umeda East Osaka City, Osaka 2,069 2, % 5.6% Hotel HTL-02 Smile Hotel Namba Osaka City, Osaka 1,750 1, % 5.6% HTL-03 BEST WESTERN Tokyo Nishi-kasai Katsushika Ward, Tokyo 3,827 3, % 4.8% HTL-04 BEST WESTERN Yokohama Yokohama City, Kanagawa 3,248 3, % 4.8% 合計 75,354 82, % 5.1% 30

32 Portfolio List (at the end of the 4th Fiscal Period) Asset type Office Office Office Office Office Office Property name Minami-Azabu Shibuya Building Honmachibashi Tower Nishi-Shinjuku Matsuya Building Alphabet Seven Shibuya MK Building Hakata-eki Higashi 113 Building Acquisition price 2,973 million yen 6,065 million yen million yen 1,725 million yen 2,042 million yen 1,885 million yen Appraisal value 3,150 million yen 6,920 million yen 2,430 million yen 2,330 million yen 2,810 million yen 2,070 million yen Structure/Floors SRC B1/7F S/SRC B1/21F SRC B1/9F RC B1/6F S 6F SRC 8F Location Minato Ward, Tokyo Osaka City, Osaka Shibuya Ward, Tokyo Minato Ward, Tokyo Shibuya Ward, Tokyo Fukuoka City, Fukuoka 2 Lot area m 2 1, m m m 2 1, m 2 (of which 2.62 m 2 (surface right) leasehold) m 2 Total floor areas 4, m 15, m 2 5, m 2 4, m 2 1, m 2 4, m 2 Construction completion (including m 2 pump room) Jun 15, 1993 Feb 8, 2010 May 28, 1987 Jan 31, 1990 Jul 31, 1993 Oct 3, 1987 Property Features Located in Minami-Azabu, a well-known, high-class residential area that is also home to embassies of various countries. In addition to access by train, the area is well served by bus routes and provides convenient access to various locations within central Tokyo. The area is highly appealing to companies in fashion, mass media, and IT-related fields. Located in the Yodoyabashi / Hommachi area, one of Osaka s leading office districts. Situated near facilities such as the Osaka Chamber of Commerce and Industry, MyDome Osaka, and City Plaza Osaka, the area has a high concentration of office buildings. The residences on the upper floors of the building offer excellent views overlooking landmarks such as Osaka Castle. Located in the Nishi-Shinjuku area, which has a high concentration of office buildings. In addition to access by train, the area is well served by bus routes and provides convenient access to various locations within central Tokyo. The property is expected to attract strong demand from affiliated companies of tenants of large-scale buildings located in Shinjuku sub-center or its surrounding area Located in the Akasaka area, one of central Tokyo s leading office/commercial districts. The property is expected to attract strong demand from affiliated companies of tenants of the TBS building, Akasaka Biz Tower, etc. Thanks to the popularity of the area, location conditions, etc., there is also strong demand for the residential units of the property. Located in the Shibuya area, one of Japan s leading commercial districts, the property has a strong appeal for fashion and IT-related companies. Following the completion of the Shibuya Station area redevelopment project, further development is expected going forward. Located in the Hakata-ekihigashi area where there is a high concentration of office buildings. Thanks to the renovated entrance hall and common areas on each floor, it appeals to tenant companies from a wide range of fields. With the completion of the Hakata Station area redevelopment project, further development is expected going forward. 31

33 Portfolio List (at the end of the 4th Fiscal Period) Asset type Office Office Residence Residence Residence Residence Property name Asahi Building Hakata-eki East Place Urban Park Azabujuban Urban Park Daikanyama Urban Park Shin- Yokohama Urban Park Namba Acquisition price 6,320 million yen 2,286 million yen 2,045 million yen 6,315 million yen 2,528 million yen 1,490 million yen Appraisal value 6,890 million yen 2,480 million yen 2,170 million yen 7,310 million yen 2,580 million yen 1,610 million yen Structure/Floors S/SRCB2/12F SRC 9F SRC with slate roofing B1/12F RC, B1/3F RC, B1/9F S B1/10F RC 14F Location Yokohama City, Kanagawa Fukuoka City, Fukuoka Minato Ward, Tokyo Shibuya Ward, Tokyo Yokohama City, Kanagawa Osaka City, Osaka Lot area 1, m 2 1, m m 2 2, m m m 2 Total floor areas 12, m 2 6, m 2 2, m 2 8, m 2 Construction completion Nov 25, 1994 Feb 24, 1986 Nov 29, 1999 (for 2 buildings combined) 1:Nov 15, :May 30, , m 2 2, m 2 May 30, 2009 Jan 9, 2013 Property Features Located in the Yokohama Station West Exit area where there is a high concentration of commercial and office buildings. The floors can be subdivided into smaller spaces, enabling the building to flexibly accommodate demand from branch offices of companies in various fields. With the completion of the Yokohama Station area redevelopment project and the Excite Yokohama 22 project, further development is expected going forward Located in the Hakata Station East area, which has a higher concentration of offices after the completion of redevelopment projects in front of the station. Even more vitalization is expected for the Fukuoka (Hakata) area with the start of Tenjin Big Bang Project and the extension of some Fukuoka City Subway lines. Located in Azabu-Juban, an area with an elegant image that also boasts popular appeal. In addition to a stately tiled facade, the property is fully equipped with premium household facilities. Adjacent to the Roppongi area, a leading shopping spot in central Tokyo. Located in the Daikanyama area, which produces the latest trends. In addition to a stately tiled facade, the property is fully equipped with premium household facilities. Adjacent to the Shibuya and Ebisu areas, which are leading shopping spots in central Tokyo. Located in the Shin- Yokohama area, which provides convenient transportation access. In addition to an elegant facade, the building is fully equipped with premium household facilities. Access to central Tokyo will improve considerably with the opening of direct services linking the Sagami and Tokyu railway lines. Located near Namba, one of Osaka s leading commercial areas. In addition to an elegant facade, the building is fully equipped with premium household facilities. The influx of population into central Osaka due to the impact of strong in-bound demand has had a stabilizing effect on occupancy rates. 32

34 Portfolio List (at the end of the 4th Fiscal Period) Asset type Residence Residence Logistics Logistics Logistics Logistics Property name Urban Park Gokokuji Urban Park Kashiwa Iwatsuki Logistics Yokohama Logistics Funabashi Logistics Baraki Logistics Acquisition price 1,460 million yen 1,186 million yen 6,942 million yen 3,560 million yen 7,875 million yen 4,700 million yen Appraisal value 1,510 million yen 1,190 million yen 7,130 million yen 4,050 million yen 8,560 million yen 4,890 million yen Structure/Floors RC B1F/5F SRC B1F/8F Steel construction, zinc plated steel roofing, 5 floors Location Toshima Ward, Tokyo Kashiwa City, Chiba Saitama City, Saitama RC 8F Yokohama City, Kanagawa Building 1: Steel construction, flat roof, zinc-plated steel roofing, 8 floors Building 2: Reinforced concrete structure Funabashi City, Chiba RC S 5F Ichikawa City, Chiba Lot area m 2 1,597.85m 2 15, m 2 10, m 2 19, m 2 6,242.76m 2 Total floor areas 2,451.72m 2 4,243.71m 2 29, m 2 18, m 2 Construction completion (including m 2 break areas etc.) Feb 28, 1990 Aug 28, 1997 Oct 29, 2014 Oct 1, , m 2 (two buildings combined) 1:Sep 25, :Aug 5, , m2 Aug 14, 2015 Property Features Located in an area with strong demand from various tenant groups for single-type residences, due to the location characteristics of having concentration of universities and junior colleges as well as Toshima ward having a relatively high ratio of single households. Located in the Kashiwa area, a leading bed town in Chiba, with an excellent access to Central Tokyo. Further medium to long-term growth is expected in the area, with completion of various redevelopment plans in front of Kashiwa Station. Located in the Iwatsuki area, which offers access to the central Tokyo, northern Kanto, and Tohoku areas. Equipped with specifications that offer a high level of versatility, such as the vehicle berths, floor height, and column interval. The property is situated in a zone of Saitama City that offers incentives for logistics facilities and therefore benefits from considerable government support. Located in the Yokohama bay area, where there are many logistics facilities. Equipped with specifications that offer a high level of versatility, such as vehicle berths, floor height, and column interval. In addition to accessing Central Tokyo, it is possible to access the wider Tokyo area thanks to the opening of the Shinagawa section of the Shuto Expressway Central Circular Route. Located in the Chiba bay area, where there are many logistics facilities. Equipped with specifications that offer a high level of versatility, such as vehicle berths, floor height, and column interval. In addition to accessing Central Tokyo, it is possible to access the wider Tokyo area thanks to the opening of the Gaikan Expressway A multi-tenant logistics facility located near the Wangan Ichikawa IC of the East Kantō Expressway. Enjoys good access to Central Tokyo as well as the consumption areas throughout Chiba, allowing tenants to respond to the needs of e- commerce operators. Located within approx. 5-minute walk from Futamata-Shinmachi station on the JR Keiyo Line, allowing for securement of employees. Property with highly versatile specifications, including one passenger elevator, two freight elevators, a floor height of approx. 6.5 m and a pillar span of approx. 9 m-11 m. Fully occupied by foreign companies and foreign 3PL companies. 33

35 Portfolio List (at the end of the 4th Fiscal Period) Asset type Logistics Hotel Hotel Hotel Hotel Property name Tokorozawa Logistics R&B Hotel Umeda East Smile Hotel Namba Best Western Tokyo Nishi-kasai Best Western Yokohama Acquisition price 1,300 million yen 2,069 million yen 1,750 million yen 3,287 million yen 3,248 million yen Appraisal value 1,400 million yen 2,290 million yen 1,750 million yen 3,890 million yen 3,270 million yen Structure/Floors S 2F RC 9F S 9F SRC B1F/9F SRC B1F/9F Location Tokorozawa City, Saitama Osaka City, Osaka Osaka City, Osaka Edogawa Ward, Tokyo Yokohama City, Kanagawa Lot area 8,645.63m m m 2 1,418.00m m 2 Total floor areas 5, m2 3, m 2 1, m 2 5,293.88m 2 4,686.09m 2 Construction completion Property Features Apr 30, 1999 Oct 20, 2000 Feb 6, 2008 Mar 19, 1991 Sep 21, 1987 A multi-tenant logistics facility used also as a warehouse, located around 8.7 km from the Tokorozawa IC on the Kan-Etsu Expressway. Good access to Central Tokyo, and also capable of covering a wide range of destinations for consumption in the Tokyo Metropolitan area with the opening of the Gaikan Expressway and the Metropolitan Inter-City Expressway. Property with highly versatile specifications, including two freight elevators, a floor height of approx. 5.5 m- 6.0 m, and a pillar span of approx. 9.5 m. Located near Umeda, one of Osaka s leading office and commercial areas. With over 200 single-occupancy rooms, the hotel is able to accommodate significant businessand tourism-based demand. Due to the impact of strong inbound demand in Osaka, further hotel demand is expected. Located near Umeda, one of Osaka s leading office and commercial areas. In addition to excellent access to Namba, located near Osaka Dome, addressing multiple businessand tourism-based demand. Due to the impact of strong in-bound demand in Osaka, further hotel demand is expected. A business hotel located within approx. a 2-minute walk from Nishikasai Station of Tokyo Metro Tozai Line. Excellent location characteristics that can attract a fair amount of Tokyo Disneyland-related leisure travelers, as it stands in a straightline distance of approx. 4 km away from Tokyo Disneyland. A hotel with great appeal to a variety of guests with various types of guest rooms depending on the intended use. A business hotel located within approx. 4-minute walk from Tsurumi Station on the JR Keihin Tohoku Line and a 3- minute walk from Keikyu Tsurumi Station on the Keihin Kyuko Line. Excellent location characteristics that can attract both business travelers and leisure travelers, as its location has good access to the major areas in Kanagawa including Yokohama and Kawasaki as well as to Haneda Airport. A hotel with great appeal to a variety of guests with various types of guest rooms depending on the intended use. 34

36 Portfolio List (the second public offering ) Asset type Office Residential Residential Logistics Logistics Logistics Property name Nihonbashi Hamacho Park Building Urban Park Ryokuchikoen Urban Park Koenji Funabashi Nishiura Logistics I Funabashi Nishiura Logistics Ⅱ Matsubushi Logistics Acquisition price 1,450 million yen 1,550 million yen 1,167 million yen 3,000 million yen 821 million yen 2,755 million yen Appraisal value 1,520 million yen 1,570 million yen 1,170 million yen 3,010 million yen 833 million yen 2,850 million yen Structure/Floors SRC 11F RC 8F RC 4F R 2F R 4F RC 3F Location Chuo Ward, Tokyo Suita City, Osaka Suginami Ward, Osaka Funabashi City, Chiba Funabashi City, Chiba Kita Katsushika-gun, Saitama Lot area m2 2, m m2 7, m2 3, m2 11, m2 Total floor areas 2, m2 5, m m2 14, m2 6, m2 19, m2 Construction completion Jul 13, 1992 Mar 10,1989 Oct 13, 1987 Oct 11, :Mar 20, :May 15, :May 13, 1986 Mar 31, 1997 Property Features Located in Nihonbashi Hamacho area, allowing easy access to major business areas in Central Tokyo and use of various railways A number of major companies have their head offices in this area, as it is a very attractive area for companies in various fields and of various sizes Further development of the area is expected considering that it not only has characteristics of an office area, but also has characteristics of residential and tourism areas Located in the Ryokuchikoen area, with good traffic accessibility, providing a lush greenery living environment such as Hattori Ryokuchikoen Popular residential area primarily for families since it is located in the Hokusetsu area, which has a high level of education Appealing primarily for families since some of the units have been renovated and since it is equipped with substantial grade household equipments Located in Koenji area, which allows for easy access to major areas in the Tokyo metropolitan area With many shopping areas, discount supermarkets, restaurants and pubs, having a high appeal to young singleperson households of business person and students Very popular residential area with its own unique culture, which can be seen in its cafes, vintage clothing shops, and clubs with live music, amongst other locations Appealing from a standpoint of securing workforce, as it is conveniently located in the Chiba Bay area, where there are many logistics facilities, and it is located at approx. 1.4km from the closest train station In addition to Access to Central Tokyo, the location allows easy access to wide range of areas throughout Tokyo via partial opening of the Gaikan Expressway The facility is provided with highly versatile specifications such as high-ceiling floors and a pillar span Appealing from a standpoint of securing workforce, as it is conveniently located in the Chiba Bay area, where there are many logistics facilities, and it is located at approx. 1.1km from the closest train station In addition to Access to Central Tokyo, the location allows easy access to wide range of areas throughout Tokyo via partial opening of the Gaikan Expressway The facility is provided with highly versatile specifications such as high-ceiling floors and a pillar span Located in Matsubushi area, with easy access to nearby areas such as Saitama Prefecture and Chiba Prefecture, in addition to Kita-Kanto, Joban, and Tohoku areas Provided with versatile specifications, such as loading berths, cargo elevators, highceiling, and a pillar span Back ups from the local government through activities by Saitama Prefecture to attract companies (the Chance Maker Saitama Strategy ) 35

37 Balance of Payments of Individual Properties for the 4th Fiscal Period Total of revenue real estate lease Lease business revenue Other lease business revenue Total of expenses - real estate lease OFC-01 OFC-03 OFC-04 OFC-05 OFC-06 OFC-07 OFC-08 OFC-09 Minami- Azabu Shibuya Building Honmachiba shi Tower Nishi- Shinjuku Matsuya Building Alphabet Seven Shibuya MK Building Hakata-eki Higashi 113 Building Asahi Building Hakata-eki East Place 90, ,202 90,089 77,246 74,205 74, ,183 95, ,936 83, ,980 81,435 70,968 68,946 67, ,117 84, ,009 6,570 26,221 8,654 6,278 5,258 7,298 17,066 10,578 87,926 27,993 63,726 34,601 22,933 20,811 26,182 56,866 22, ,349 PM fees 5,735 13,440 6,656 4,902 4,829 7,406 15,648 8,396 67,016 Trust fees ,800 Utilities expenses 6,806 24,891 8,132 5,547 3,648 7,100 17,507 10,358 83,360 Insurance expenses ,522 Repair expenses 922 2,427 1,086 5,202 4,931 3,736 4,251 2,568 25,127 Taxes and public dues 4,574 19,683 3,222 5,768 4,192 5,073 16,021-58,535 Other 9,327 2,412 14, ,731 2,299 2, ,987 NOI 62, ,475 55,488 54,313 53,394 48, ,317 72, ,586 Depreciation 10,749 44,891 7,157 4,117 2,619 5,728 22,435 6, ,111 Income from real estate property leasing (Unit: thousand yen) 51, ,584 48,331 50,195 50,774 42, ,881 65, ,475 Capital expenditures 12,955 3,168 14,799 12,013 19,553 6,600 30,544 3, ,618 Office Total NCF 49, ,306 40,688 42,299 33,840 41, ,772 68, ,338 36

38 Balance of Payments of Individual Properties for the 4th Fiscal Period Total of revenue real estate lease RSC-01 RSC-02 RSC-04 RSC-05 RSC-06 RSC-07 Urban Park Azabujuban Urban Park Daikanyama Urban Park Shin- Yokohama Urban Park Namba Urban Park Gokokuji Urban Park Kashiwa Residence Total 55, ,353 70,616 51,049 46,407 35, ,598 Lease business revenue 51, ,557 69,201 48,210 44,910 34, ,008 Other lease business revenue Total of expenses - real estate lease 3,819 7,796 1,415 2,838 1,496 1,224 18,590 11,869 34,523 21,153 13,588 13,863 7, ,696 PM fees 2,142 8,681 4,698 2,576 3,772 1,843 23,713 Trust fees ,630 Utilities expenses 544 4, , ,141 Insurance expenses Repair expenses 2,998 5,271 2,504 3,064 4,479 1,729 20,047 Taxes and public dues 2,738 10,825 4,721 2, ,165 Other 2,951 4,326 7,753 4,057 2,508 2,737 24,335 NOI 43, ,830 49,463 37,460 32,543 28, ,902 Depreciation 4,199 12,137 16,442 7,508 4,098 6,525 50,912 Income from real estate property leasing (Unit: thousand yen) 39, ,693 33,020 29,951 28,445 21, ,989 Capital expenditures 15,595 2, ,341 30,842 NCF 28, ,521 49,463 36,834 31,572 16, ,060 37

39 Balance of Payments of Individual Properties for the 4th Fiscal Period Total of revenue real estate lease Lease business revenue Other lease business revenue Total of expenses - real estate lease LGC-01 LGC-02 LGC-03 LGC-04 LGC-05 Iwatsuki Logistics 201,821 Yokohama Logistics Funabashi Logistics 258,103 Baraki Logistics Tokorozawa Logistics Logistics facility Total 748, , , ,597 14,103 20,003 46,137 34,501 57, ,682 PM fees 5,650 12,058 26,618 Trust fees ,250 Utilities expenses 14,103 17,218 44,218 Insurance expenses 296 Not 429 Not Not 1,151 Repair expenses - disclosed 2,715 disclosed disclosed 6,015 Taxes and public dues 14,020 23,678 51,724 Other ,705 NOI 167, , ,052 Depreciation 46,434 26, ,624 Income from real estate property leasing (Unit: thousand yen) 120, , ,427 Capital expenditures - 6,226 35,023 NCF 167, , ,028 ( ) テナントからの開示に関する同意が得られていないため 非開示としています 38

40 Balance of Payments of Individual Properties for the 4th Fiscal Period (Unit: thousand yen) HTL-01 HTL-02 HTL-03 HTL-04 R&B Hotel Umeda East Smile Hotel Namba Best Western Tokyo Nishi-kasai Best Western Yokohama Hotel Total 合計 Total of revenue real estate lease 64,935 53,067 84,600 80, ,002 2,408,272 Lease business revenue 64,935 53,067 84,600 80, ,002 2,255,617 Other lease business revenue ,654 Total of expenses - real estate lease 7,305 4,097 2,593 8,633 22, ,359 PM fees ,200 1,200 3, ,151 Trust fees ,060 10,740 Utilities expenses ,730 Insurance expenses ,772 Repair expenses ,789 8,359 59,548 Taxes and public dues 5,383 2, , ,112 Other ,304 NOI 57,629 48,969 82,006 71, ,371 1,871,912 Depreciation 9,142 11,940 9,640 10,918 41, ,290 Income from real estate property leasing 48,487 37,028 72,365 60, ,729 1,566,622 Capital expenditures 3,514 1,626 3,968 4,218 13, ,811 NCF 54,115 47,342 78,037 67, ,043 1,689,101 39

41 Organizational Framework of Asset Manager (As of March 20,2018) President and CEO Atsushi Kato After entering Nomura Real Estate Development Co., Ltd., he worked for Showa Ota Ernst & Young, and then entered Nomura Securities Co, Ltd. After being involved in the asset finance business including support in establishing J- REITs, he joined Star Asia Investment Management Co., Ltd. Chief Compliance Officer Kazuaki Fujii Worked at Mizuho FG and its affiliate companies. Holds experience in a broad range of on-site auditing, including theme audits on risk management, internal control, compliance and others. Investment Management Division Finance Management Division Director and CEO Satoshi Obara Joined Nissho Iwai Corporation (current: Sojitz Corporation). After working in the condominium developer sector of the Urban Development Department, engaged in acquisition and asset management of private funds at Morgan Stanley Capital K.K. Has been involved in business deals totaling 218 billion yen. Joined Hulic Co., Ltd. Engaged in IPO and four POs at Hulic Reit Management Co., Ltd. Director and CFO Toru Sugihara After being involved in the investment banking business at Nomura Securities Co., Ltd., he worked at Barclays Securities Japan Limited and Kenedix, Inc. and joined Star Asia Management Japan, Ltd. Manager (Male) Manager (Female) Manager (Male) Manager (Female) Assistant Real Estate Appraiser Was in charge of the acquisition of a total of over 100 billion yen in properties, asset management (AM) and finance tasks at a foreignaffiliated real estate investment company, prior to which he supervised acquisitions, AM and finance tasks at a REIT operating company. Was involved in contracting tasks and accounting tasks at a leading real estate operating company. Currently conducts property cash management in cooperation with the Finance Management Division. Was involved in asset management at an overseas listed fund s asset management company, prior to which he was in charge of acquisitions, including development projects, at a real estate asset management company. Was involved in acquisitions and interim investment management of various asset types at an overseas listed fund s asset management company and a J-REIT operating company. Currently in charge of asset management. Manager (Female) Manager (Male) Manager (Female) Associate (Female) Involved in IR, management planning tasks, etc. in the general construction industry. Using experience obtained thereafter in startup work for an overseas base of a different business, is currently in charge of general financial management tasks while primarily working in IR. Certified Public Accountant After gaining experience as a member of an audit team of a REIT at an accounting office, he was involved in tasks of the planning department at a leading investment advisory company. Using his expert knowledge, he also contributes to the formulation of management strategies. After gaining experience in conducting duties at a leading bank and foreign-affiliated financial institute, gained experience in PM tasks for over 50 properties in total of REITs, private placement and individual owners at a leading PM company, and using such experience, conducts property cash management in cooperation with the Investment Management Division. She also contributes in other administrative tasks. In charge of a wide range of work as an assistant, using abundant experience from various duties. Star Asia Management Japan Limited (Construction Management department) Tatsuji Ishii the functions at foreign real estate funds by hiring personnel who were in charge of ➀ implementing capital expenditure and making repair plans with an aim to enhance value and maintain functions upon acquiring real estate and 2 supervising construction work such as renewal and repair work after the acquisition of real estate 40